OECD: U.S. Contraction is Slowing But the Ensuing Recovery Will Be Weak

The U.S. recession  is projected to bottom out in the second half of the current year, as fiscal and monetary support takes hold and the housing cycle bottoms out, the Organization for Economic Cooperation and Development [OECD] said today in its  twice-yearly report on global economic conditions.

The Paris-based OECD recognized however in its report, that any U.S. recovery will be weak and fragile due to anemic markets and slowdown in capital accumulation. In this environment, the OECD estimates that a considerable degree of weakness, especially in the labour market, is likely to persist, bringing inflation to very low rates. The OECD projected that U.S. national output will contract 2.8% in 2009 but grow 0.9% in 2010.

The OECD also pointed out in the report the role that massive policy stimulus have played so far in stabilising financial institutions and markets, and urged the U.S. administration to push ahead with plans for public-private partnerships to remove toxic assets from banks’ balance sheets, adding that, if necessary, the Fed should expand the scale of its QE measures that include buying longer-term U.S. Treasury securities.

The OECD warned that consumer spending was unlikely to rebound because labor markets remain strained, but noted positively that financial conditions have turned up, and GDP estimates, based on indicators of activity, have ceased to deteriorate in the U.S. OECD sees the lengthy deterioration in U.S. housing markets “may be approaching an end.”

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